LTV (Lifetime Value)

How it works

LTV = ARPU × Gross Margin / Churn Rate (for SaaS). The LTV/CAC ratio is the single most-quoted unit economics metric — investors want to see at least 3:1 for a venture-scale business. LTV that's too high relative to CAC can also be a yellow flag — it might mean the company is under-investing in growth.

Related terms

• CAC (Customer Acquisition Cost)
  CAC is the total sales and marketing cost required to acquire one new customer.
• CAC payback period
  CAC payback period is the number of months it takes to recover the cost of acquiring a customer through their gross-margin contribution.
• NRR (Net Revenue Retention)
  Net Revenue Retention measures the percentage of revenue retained from a cohort of customers over a year, including expansion and contraction but excluding new customers.